July 21, 2024

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Which Will Be the First to Reach a $4 Trillion Market Cap?

2 min read

Three artificial intelligence-fueled stocks currently dominate the top of the market. Nvidia (NASDAQ: NVDA) has rocketed higher over the past 18 months, briefly surpassing both Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL) as the most valuable company in the world.

After Friday’s close, Microsoft had the highest market cap at $3.34 trillion, followed by Apple at $3.18 trillion and Nvidia at $3.11 trillion.

All three are within striking distance of $4 trillion, but investors may be wondering which stock has the best chance of getting there first.

The case for Nvidia

Nvidia’s financial results have been fueled by the ongoing artificial intelligence (AL) arms race. Big tech companies are buying up as many of Nvidia’s chips as they can get their hands on, which has pushed Nvidia to raise prices as supply struggles to keep up with demand.

Nvidia’s first-quarter revenue of $26 billion is up 262% from a year ago, and its gross margin expanded 13.8 percentage points to 78.4%. That fueled a massive 629% increase in earnings per share (EPS).

There aren’t many signs of slowing down over the next few months either. Management’s Q2 outlook for $28 billion in revenue and 74.8% gross margin suggest another strong earnings result. Meanwhile, big tech companies including Microsoft, Meta Platforms, and Tesla all shared plans to increase their spending on AI data-center expenditures, which include large purchases from Nvidia.

But the long-term outlook is less certain. Nvidia receives a large concentration of its sales from just a handful of customers. One customer accounts for 13% of its direct sales, and one indirect customer accounts for 19% of total revenue. Meanwhile, those big customers, including Microsoft, Meta, and others, are all designing and deploying their own AI chips for their data centers. Once they scale manufacturing, those chips may ultimately provide a more cost-efficient solution for their data centers, reducing their orders from Nvidia.

The short-term potential…

2024-06-23 12:14:00

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